<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
--------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission File Number 1-9145
--------
ML MACADAMIA ORCHARDS, L.P.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 99-0248088
--------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
828 FORT STREET, HONOLULU, HAWAII 96813
----------------------------------------- ---------
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 808-532-4130
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- --------
As of September 30, 2000, Registrant had 7,500,000 Class A Units issued and
outstanding.
1
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ML MACADAMIA ORCHARDS, L.P.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
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ML MACADAMIA ORCHARDS, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------------------
2000 1999 1999
-------------- ------------- -----------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 248 $ 5,009 $ 5,325
Accounts receivable 5,357 4,304 7,687
Inventory of farming supplies 126 - -
Annualized cost adjustment 1,578 534 -
Other current assets 413 88 3
-------------- ------------- -----------------
Total current assets 7,722 9,935 13,015
Land, orchards and equipment, net 61,248 53,888 53,488
Intangible assets, net 30 - -
-------------- ------------- -----------------
Total assets $ 69,000 $ 63,823 $ 66,503
============== ============= =================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current portion of long-term debt $ 431 $ - $ -
Short-term borrowings 1,500 - -
Accounts payable 421 3,144 2,819
Cash distributions payable 947 757 758
Other current liabilities 1,211 296 407
-------------- ------------- -----------------
Total current liabilities 4,510 4,197 3,984
Long-term debt 3,757 - -
Deferred income tax liability 1,249 1,220 1,249
-------------- ------------- -----------------
Total liabilities 9,516 5,417 5,233
-------------- ------------- -----------------
Commitments and contingencies
Partners' capital
General partners 595 584 613
Class A limited partners, no par or assigned value,
7,500 units issued and outstanding 58,889 57,822 60,657
-------------- ------------- -----------------
Total partners' capital 59,484 58,406 61,270
-------------- ------------- -----------------
Total liabilities and partners' capital $ 69,000 $ 63,823 $ 66,503
============== ============= =================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
ML MACADAMIA ORCHARDS, L.P.
INCOME STATEMENTS (UNAUDITED)
(in thousands, except per unit data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Macadamia nut sales $ 4,392 $ 4,253 $ 6,635 $ 8,314
Contract farming revenue 1,515 - 1,942 -
Administrative services revenue 54 - 110 -
----------- ----------- ----------- ------------
Total revenues 5,961 4,253 8,687 8,314
----------- ----------- ----------- ------------
Cost of goods and services sold
Costs expensed for farming and services 3,519 2,867 5,291 5,284
Depreciation and amortization 822 610 1,233 1,122
Other 164 142 244 266
----------- ----------- ----------- ------------
Total cost of goods and services sold 4,505 3,619 6,768 6,672
----------- ----------- ----------- ------------
Gross income 1,456 634 1,919 1,642
----------- ----------- ----------- ------------
General and administrative expenses
Costs expensed under management contract
with related party 90 149 309 448
Other 279 62 632 322
----------- ----------- ----------- ------------
Total general and administrative expenses 369 211 941 770
----------- ----------- ----------- ------------
Operating income 1,087 423 978 872
Interest expense (115) - (192) -
Interest income 7 66 233 210
Other income - - 104 -
----------- ----------- ----------- ------------
Income before tax 979 489 1,123 1,082
Income tax expense 50 22 67 58
----------- ----------- ----------- ------------
Net income $ 929 $ 467 $ 1,056 $ 1,024
=========== =========== =========== ============
-------------------------------------------------------------------------------------------------------------------------
Net cash flow
(as defined in the Partnership Agreement) $ 1,740 $ 1,077 $ 2,270 $ 2,146
=========== =========== =========== ============
-------------------------------------------------------------------------------------------------------------------------
Net income per Class A Unit $ 0.12 $ 0.06 $ 0.14 $ 0.14
=========== =========== =========== ============
Net cash flow per Class A Unit $ 0.23 $ 0.14 $ 0.30 $ 0.28
=========== =========== =========== ============
Cash distributions per Class A Unit $ 0.125 $ 0.10 $ 0.375 $ 0.30
=========== =========== =========== ============
Class A Units outstanding 7,500 7,500 7,500 7,500
=========== =========== =========== ============
</TABLE>
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
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ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital at beginning of period:
General partners $ 595 $ 587 $ 613 $ 597
Class A limited partners 58,908 58,110 60,657 59,058
------------ ------------- ------------ ------------
59,503 58,697 61,270 59,655
------------ ------------- ------------ ------------
Allocation of net income
General partners 10 5 11 10
Class A limited partners 919 462 1,045 1,014
------------ ------------- ------------ ------------
929 467 1,056 1,024
------------ ------------- ------------ ------------
Cash distributions:
General partners 10 8 29 23
Class A limited partners 938 750 2,813 2,250
------------ ------------- ------------ ------------
948 758 2,842 2,273
------------ ------------- ------------ ------------
Partners' capital at end of period:
General partners 595 584 595 584
Class A limited partners 58,889 57,822 58,889 57,822
------------ ------------- ------------ ------------
$ 59,484 $ 58,406 $ 59,484 $ 58,406
============ ============= ============ ============
</TABLE>
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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ML MACADAMIA ORCHARDS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from goods and services $ 1,702 $ 4,060 $ 10,937 $ 9,444
Cash paid to suppliers and employees (3,552) (1,466) (10,148) (6,889)
Interest received 7 110 233 221
-------------- ------------- -------------- -------------
Net cash provided by (used in) operating activities (1,843) 2,704 1,022 2,776
-------------- ------------- -------------- -------------
Cash flows from investing activities:
Acquisition of orchards and farming business - - (8,928) -
-------------- ------------- -------------- -------------
Net cash used in investing activities - - (8,928) -
-------------- ------------- -------------- -------------
Cash flows from financing activities:
Proceeds from borrowings 1,500 - 5,500 -
Capital lease payments (11) - (19) -
Cash distributions paid (947) (758) (2,084) (2,652)
-------------- ------------- -------------- -------------
Net cash provided by (used in) financing activities 542 (758) 2,829 (2,084)
-------------- ------------- -------------- -------------
Net increase (decrease) in cash (1,301) 1,946 (5,077) 692
Cash at beginning of period 1,549 3,063 5,325 4,317
-------------- ------------- -------------- -------------
Cash at end of period $ 248 $ 5,009 $ 248 $ 5,009
============== ============= ============== =============
Reconciliation of net income to net cash
provided by (used in) operating activities:
Net income $ 929 $ 467 $ 1,056 $ 1,024
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 822 610 1,233 1,122
Decrease (increase) in accounts receivable (4,038) (151) 2,330 1,131
Decrease in inventories 5 - 53 -
Decrease (increase) in annualized cost
adjustment (other than depreciation) 343 5 (1,206) (454)
Increase in other current assets (100) (65) (571) (88)
Increase (decrease) in accounts payable (319) 1,950 (2,398) 123
Increase (decrease) in other current liabilities 515 (112) 525 (82)
-------------- ------------- -------------- -------------
Total adjustments (2,772) 2,237 (34) 1,752
-------------- ------------- -------------- -------------
Net cash provided by (used in) operating activities $ (1,843) $ 2,704 $ 1,022 $ 2,776
============== ============= ============== =============
</TABLE>
--------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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ML MACADAMIA ORCHARDS, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements of
ML Macadamia Orchards, L.P. ("the Partnership") include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly its
financial position as of September 30, 2000, September 30, 1999 and December 31,
1999 and the results of operations, changes in partners' capital and cash flows
for the periods ended September 30, 2000 and 1999. The results of operations for
the period ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year or for any future period.
These interim financial statements should be read in conjunction with the
Financial Statements and the Notes to Financial Statements filed with the
Securities and Exchange Commission in the Partnership's 1999 Annual Report on
Form 10-K.
(2) ACQUISITION
On May 1, 2000, the Partnership purchased 142 acres of mature macadamia trees
and substantially all of the assets used in the macadamia farming business from
Ka'u Agribusiness Company, Inc., Ka'u Sugar, Inc., Mauna Kea Macadamia Orchards,
Inc., and Mauna Kea Agribusiness Company, Inc., all related entities. The
farming assets consist of the farming equipment, vehicles, a husking plant,
irrigation well, leasehold improvements, office furniture and equipment and
inventories related to macadamia farming. The purchase price was $8.9 million
dollars and was paid using $4.9 million in cash and a loan from Pacific Coast
Farm Credit of $4 million.
The initial purchase price has been allocated on a preliminary basis, pending a
final determination, to assets acquired based on estimated fair value. The
initial allocated fair value of assets acquired is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Inventory $ 127,000
Nursery 52,000
Property, plant and equipment 9,176,000
Current liabilities (427,000)
-------------------
Total $ 8,928,000
===================
</TABLE>
Pro forma results of operations for the Partnership, assuming the acquisition of
the assets had occurred at the beginning of the periods indicated below, are as
follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
----------------- -----------------
(in thousands, except per Unit data)
<S> <C> <C>
Revenue $ 12,320 $ 16,689
Net income $ 1,205 $ 1,522
Net income per Class A Unit $ 0.16 $ 0.20
</TABLE>
7
<PAGE>
The unaudited pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted had the acquisition been in effect at the beginning of each
period presented, or of future results of operations of the entities.
(3) SEGMENT INFORMATION
The Partnership has two reportable segments, the owned-orchard segment and the
farming segment, which are organized on the basis of revenues and assets. The
owned-orchard segment derives its revenues from the sale of macadamia nuts grown
in orchards owned or leased by the Partnership. The farming segment derives its
revenues from the farming of macadamia orchards owned by other growers. It also
farms those orchards owned by the Partnership.
Management evaluates the performance of each segment on the basis of operating
income. The Partnership accounts for intersegment sales and transfers at cost.
Such intersegment sales and transfers are eliminated in consolidation.
The Partnership's reportable segments are distinct business enterprises that
offer different products or services. Revenues from the owned-orchard segment
are subject to long-term nut purchase contracts and tend to vary from year to
year due to changes in the calculated nut price per pound. The farming segment's
revenues are based on long-term farming contracts which generate a farming
profit based on a percentage of farming cost or based on a fixed fee per acre
and tend to be less variable than revenues from the owned-orchard segment.
The following is a summary of each reportable segment's operating income and the
segment's assets as of and for the periods ended September 30, 2000. The
contract farming segment results of operations include the period May 1, 2000
(date of acquisition) through September 30, 2000.
Segment Reporting for the Three Months ended September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Owned Contract Intersegment
Orchards Farming elimination Total
-------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 4,392 $ 3,764 $ (2,195) $ 5,961
Composition of
intersegment revenues - 2,195 - 2,195
Operating income 1,061 26 - 1,087
Depreciation expense 684 138 - 822
Segment assets 59,729 9,271 - 69,000
Expenditures for property
and equipment - - - -
</TABLE>
8
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Segment Reporting for the Nine Months ended September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Owned Contract Intersegment
Orchards Farming elimination Total
---------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 6,635 $ 6,858 $ (4,806) $ 8,687
Composition of
intersegment revenues - 4,806 - 4,806
Operating income 968 10 - 978
Depreciation expense 990 243 - 1,233
Segment assets 59,729 9,271 - 69,000
Expenditures for property
and equipment 2,533 6,850 - 9,383
</TABLE>
All revenues are from sources within the United States.
(4) INTERIM REPORTING
All production costs are annualized for interim reporting purposes, with the
difference between costs incurred to date and costs expensed to date being
reported on the balance sheet as an annualized cost adjustment.
(5) LONG-TERM DEBT
REVOLVING CREDIT LOAN. On May 2, 2000 the Partnership entered into a new credit
agreement with Pacific Coast Farm Credit Services under which it will have
available a $5 million revolving credit facility through April 30, 2004.
Borrowings under this credit facility were $1.5 million as of September 30, 2000
at an interest rate of 9.5%.
Borrowings under this agreement bear interest at the prime lending rate. From
and after the first anniversary date, the Partnership is required to pay a
facility fee of 0.175% to 0.25% per annum, depending on certain financial
ratios, on the daily unused portion of the credit. The Partnership, at its
option, may make prepayments without penalty.
TERM DEBT. As of September 30, 2000, the Partnership had a $4 million promissory
note outstanding, which was issued on May 2, 2000 in conjunction with the credit
agreement discussed above. The note is scheduled to mature in 2010 and bears
interest at rates from 8.53 percent to 9.16 percent.
(6) PARTNERS' CAPITAL
All capital allocations reflect the general partner's 1% equity interest and the
limited partners' 99% percent equity interest. Net income per Class A Unit is
calculated by dividing 99% of Partnership net income by the average number of
Class A Units outstanding for the period.
9
<PAGE>
(7) CASH DISTRIBUTIONS
On September 8, 2000, a third quarter cash distribution was declared in the
amount of twelve and one-half cents ($0.125) per Class A Unit, payable on
November 15, 2000 to unitholders of record as of the close of business on
September 29, 2000.
(8) MAUNA LOA MACADAMIA NUT CORPORATION
On September 29, 2000, C. Brewer and Company, Ltd. ("CBCL") announced that it
had sold all of the stock of Mauna Loa Macadamia Nut Corporation ("Mauna Loa")
to The Shansby Group, a San Francisco based private equity partnership. Mauna
Loa is the exclusive purchaser of all of the Partnership's macadamia nuts under
long term nut purchase contracts. CBCL owns all of the stock of ML Resources,
Inc., the general and managing partner of the Partnership.
ML MACADAMIA ORCHARDS, L.P.
Management's Discussion and Analysis of
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On May 1, 2000, the Partnership completed the purchase of the macadamia farming
operations from four subsidiaries of C. Brewer and Company, Ltd. The acquired
assets consist of 142 acres of macadamia orchards, farming contracts, farming
equipment, vehicles, a husking plant, irrigation well, office buildings, garages
and warehouses, office furniture and equipment and material inventories related
to macadamia farming. All the assets and operations are located on the island of
Hawaii. Effective with the acquisition, the Partnership now performs all the
farming operations for its own 4,169 acres and for approximately 3,000
additional acres owned by other growers.
RESULTS OF OPERATIONS
ML Macadamia Orchards' net income for the third quarter of 2000 was $929,000, or
$0.12 per Class A Unit, double the third quarter 1999 net income of $467,000, or
$0.06 per Class A Unit. Net cash flow per Class A Unit for the third quarter
increased to $0.23 in 2000 from $0.14 in 1999.
Total revenues for the third quarter 2000 were $6.0 million, which included $1.5
million of farming service revenue. Third quarter 1999 revenue was $4.3 million,
which was all nut revenue.
Net income for the nine months ended September 30, 2000 was $1.1 million, or
$0.14 per Class A Unit, compared to $1.0 million, or $0.14 per Class A Unit,
recorded in the first nine months of 1999. Net cash flow per Class A Unit was
$0.30 in 2000 compared to $0.28 in 1999. Total revenues for the first nine
months of 2000 were $8.7 million compared to $8.3 million recorded in the first
nine months of 1999. The 2000 period revenues included $1.9 million of farming
service revenue and $110,000 of administrative service revenue.
OWNED-ORCHARD SEGMENT
For the three months and the nine months ending September 30, 2000 and 1999, nut
production, nut prices and revenues are summarized below:
10
<PAGE>
<TABLE>
<CAPTION>
For the Three Months
Ended September 30, Change
------------------------------ -------------
2000 1999
-------------- -------------
<S> <C> <C> <C>
Nut harvested (000's pounds WIS) 8,617 7,967 + 8%
Nut price (per pound) $ 0.5097 $ 0.5338 - 5%
-------------- -------------
Net nut sales ($000's) 4,392 4,253 + 3%
============== =============
<CAPTION>
For the Nine Months
Ended September 30, Change
------------------------------ -------------
2000 1999
-------------- -------------
<S> <C> <C> <C>
Nut harvested (000's pounds WIS) 12,465 14,334 - 13%
Nut price (per pound) $ 0.5323 $ 0.5800 - 8%
-------------- -------------
Net nut sales ($000's) 6,635 8,314 - 20%
============== =============
</TABLE>
Production for the three-month period ending September 30, 2000 was 8% higher
than the same quarter last year, and, for the first time in the partnership's
history, third quarter production exceeded 8 million pounds. Harvesting was very
heavy in August and September in both the Keaau and Mauna Kea regions,
indicating an early fall/winter harvest for these two regions. The Ka'u region
also had good production in the third quarter. Due to the rainstorm and flooding
discussed below, production for the balance of the year is uncertain and may
decline as compared to the same periods in past years.
Production for the nine-month period ending September 30, 2000 was 13% lower
than the same period in 1999. The production for the nine-month period ending
September 30, 1999 was the highest in the Partnership's history for this period
due to the winter crop falling heavier in the first quarter than normal.
For the first nine months in 2000, the Partnership received an average nut price
of $0.53, compared to $0.58 for the same period in 1999. The average nut price
recorded for the three-month periods in 2000 and 1999 are the result of the
nine-month nut prices less adjustments for the first two quarters of each year
which were paid at higher prices.
The Partnership's nut price is determined by a formula which is weighted 50% on
the two-year trailing average of USDA reported prices and 50% on the current
year processing and marketing results of Mauna Loa Macadamia Nut Corporation
("Mauna Loa"), the exclusive purchaser of the Partnership's nuts.
The USDA portion of the current year's nut price is already determined, and it
will be 7% lower than the previous year. Mauna Loa has estimated that its
portion of the current year's nut price will be lower by 25% due to an expected
greater level of lower-value ingredient nut sales by Mauna Loa. However, the
final nut price for the year will not be known until the completion of the year,
when Mauna Loa's books have been closed and audited and that portion of the nut
price is determined. For the full year 1999, the actual average nut price
received by the Partnership was $0.6238.
Prior to the acquisition of the macadamia farming operations on May 1, 2000, all
production activities were performed under long-term farming contracts.
Production costs both before and after
11
<PAGE>
the acquisition are based on annualized standard unit costs for interim
reporting periods. Total cost of goods sold for the owned-orchards were $0.35
and $0.39, respectively, for the third quarter and the nine-month period in
2000. Both periods are lower than the comparable periods in 1999. This is
partly due to the savings incurred by doing our own farming and partly due to
1999 estimates that were too high. The costs per pound in 1999 were estimated
at $0.45 to $0.47 per pound, and the final cost for the year was $0.39 per
pound
FARMING SEGMENT
This is the second quarter that the Partnership has been involved in the farming
activity, which resulted from the May 1, 2000 acquisition. Revenue generated
from the farming of macadamia orchards owned by other growers was $1.5 million
for the third quarter 2000. Farming expenses for the same period were $1.5
million, which included $138,000 of depreciation expense.
For the nine-month period, farming service revenues were $1.9 million, and
farming expenses were $1.9 million,which included $243,000 of depreciation
expense.
Administrative service revenue of $54,000 for the third quarter and $110,000 for
the nine-month period was earned by the farming operation's accounting office as
a result of accounting and data processing services being provided to the
previous owner during a period of transition.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses are higher for the third quarter 2000 by
$158,000 and higher by $171,000 for the nine-month period, as compared to the
same periods in 1999. Prior to the farming operations acquisition, general and
administrative expenses incurred by the farming contractors were included in
their farming invoices and recorded by the Partnership as cost of goods sold.
These same costs are now incurred directly by the Partnership and are recorded
as general and administrative expense. As previously mentioned, the farming
costs for the third quarter and nine-month period in 2000 are lower than the
comparable periods in 1999 for this same reclassification of expenses.
OTHER INCOME AND EXPENSES
The Partnership recorded interest expense of $115,000 for the third quarter and
$192,000 for the first nine months of 2000. This was due to (1) the long-term
loan used to acquire the farming operations, (2) the assumption of several
capitalized equipment leases, and (3) interest expense on a new revolving line
of credit. There was no interest expense for the three and nine month periods in
1999.
Interest income was $7,000 for the third quarter of 2000 compared to $66,000 in
1999. In 1999 and for the first half of 2000, the Partnership had cash on hand
which was earning interest income.
Other income of $104,000 was recorded for the first nine months of 2000 due to a
claim filed on a crop insurance policy for the 1999-2000 crop. Production in
some fields in the Ka'u region were lower than their ten-year average by more
than a 25% deductible due to the drought in that region.
LIQUIDITY AND CAPITAL RESOURCES
Macadamia nut farming is seasonal, with production peaking in the fall and
winter. However, farming operations continue year round. As a result, additional
working capital is required for much of the harvesting season.
12
<PAGE>
The Partnership meets its working capital needs with cash on hand, and when
necessary, through short-term borrowings under a $5.0 million revolving line of
credit. At September 30, 2000 the Partnership had a cash balance of $248,000 and
short-term borrowings outstanding of $1.5 million. The Partnership anticipates
borrowing from the revolving line of credit to fund working capital needs
arising from the normal seasonal requirements of macadamia nut farming, usually
from August to January.
At September 30, 2000, the Partnership had $4.2 million in outstanding long-term
debt representing a $4.0 million ten-year note under its new Credit Agreement
and $187,000 of capital leases. The Credit Agreement contains certain
restrictions, which are discussed in Part II - Item 2 below.
It is the opinion of management that the Partnership has adequate borrowing
capacity available to meet anticipated working capital needs.
DROUGHT AND STORM DAMAGE
The Ka'u region, where 50% of the Partnership's orchards are located, was in its
third year of drought. Ka'u received over 10 inches of rainfall during the third
quarter and was expected to return to normal production for the current crop
year.
On November 2, 2000, over 30 inches of rain fell in 24 hours in the Ka'u region.
The heavy rains caused extensive flooding, and the major highway linking the
town of Pahala and Hilo was heavily damaged. The Partnership suffered damage to
its crop, road and irrigation system. In addition, some trees were destroyed.
The full extent of the damage is still being assessed.
MAUNA LOA SALE
On September 29, 2000, C. Brewer and Company, Ltd., the owner of Mauna Loa
announced that it had sold all of the stock in Mauna Loa to The Shansby Group, a
San Francisco based private equity partnership. A press release issued by the
parties indicated that the management team at Mauna Loa will continue in place.
C. Brewer and Company, Ltd. is also the owner of ML Resources, Inc., the general
partner of the Partnership.
Mauna Loa is the exclusive purchaser of all of the Partnership's macadamia nuts
under long-term nut purchase contracts. These nut purchase contracts between
Mauna Loa and the Partnership will remain in effect. However, since Mauna Loa's
performance partly determines the price that the Partnership receives for its
macadamia nuts, the Partnership has no way of knowing whether a change in Mauna
Loa's ownership would enhance or diminish Mauna Loa's performance, and thus,
affect the Partnership's returns.
An issue has arisen between the Partnership and the new owners of Mauna Loa
concerning their requirement to purchase all macadamia nuts on two of the
long-term purchase contracts. The new owners of Mauna Loa have taken a position
that they do not have to pay for unusable nuts delivered to them from the
Partnership's orchards covered by the 1986 nut purchase contracts. Mauna Loa has
paid for all the nuts, including any unusable nuts, from these orchards since
the inception of the Partnership in 1986. The Partnership is confident that
Mauna Loa is required to pay for these nuts and that the new owners of Mauna Loa
do not have the right to change the practice of the last 14 years.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risks resulting from changes in interest
rates. The Partnership has market risk exposure on its Credit Agreement due to
its variable rate pricing that is based on rates based on LIBOR, the Farm Credit
Discount Note Rate and the Farm Credit Medium Term Note Rate. As of September
30, 2000, a one percent increase or decrease in the applicable rate under the
Credit agreement will result in an interest expense fluctuation of approximately
$40,000.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In connection with the Credit Agreement with Pacific Coast Farm Credit Services,
certain restrictions are placed on the Partnership in regard to indebtedness,
sales of assets and maintenance of certain financial minimums. The Partnership's
cash distributions will be restricted unless all requirements of these covenants
are met and the effects of any cash distributions do not breach any of the
financial covenants. The restrictive covenants consist of the following:
1. Minimum working capital of $2.5 million.
2. Minimum current ratio of 1.5 to 1.
3. Cumulative cash distributions beginning January 1, 2000 cannot exceed
the total of cumulative net cash flow beginning January 1, 2000 plus a
base amount of $3 million.
4. Minimum tangible net worth of $57.5 million (reduced by the amount of
allowed cash distributions over net income).
5. Maximum ratio of funded debt to capitalization of 20%. 6. Minimum debt
coverage ratio of 2.5 to 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
11.1 Statement re Computation of Net Income
per Class A Unit 12
27 Financial Data Schedule (filed only
electronically with the SEC) --
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter of 2000.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML MACADAMIA ORCHARDS, L.P.
(Registrant)
By ML RESOURCES, INC.
Managing General Partner
Date: November 9, 2000 By /s/ Gregory A. Sprecher
--------------------------
GREGORY A. SPRECHER
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
------ ----------------------- --------
11.1 Statement re Computation of Net Income 12
per Class A Unit
27 Financial Data Schedule (filed only
electronically with the SEC) --
15
